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Jim Long Pork Commentary: US pork cut outs jump! Aberration?

16 July 2020, at 9:30am

At the end of last week, US Pork cuts gained about 7¢ lb. or $14.00 plus a carcass (Friday’s close $68.95). Is this an aberration of a sign of some newfound strength in the pork market? Our observation is no one pays more than they have too to get what they want. Maybe we are the boy who sees the manure pile and thinks there is pay inside. One thing for sure this business seems to be one big manure pile for producers.

We believe the hog market, if it gains strength, will be led by pork cut-outs. We don’t think it will be lean hog futures. Cut-outs will reflect pork demand and supply.

The market is currently ham strung by the story of a huge number of backed-up hogs. If you were a pork buyer would you be aggressively purchasing pork when all you read is a deluge of pork is coming? The same buyers can see lean hog futures circling 50¢ lb. Not exactly an indicator that the pork price will explode on you.

Foreign buyers also read our industry news, our global contacts have asked us if we think US packers will be able, due to coronavirus, to keep operating to supply them import needs.

Three factors – supply, futures, and Coronavirus all negatives for hog price appreciation. That’s why the pork cut-outs price has to lead the way. Only the reality of an appreciating pork price can push back the negatives.

Last week US packers were aggressive. They handled 2,606,000 up 187,000 from a year ago. We also saw slaughter weights continue to decline. Weights have come down 12 lbs. plus from the May highs. We still can’t rationalize how 3 million-plus pigs are alleged to be backed up across USA but weights continue to drop. We have had hogs four decades, when we backed up hogs, weights went up, not down. Maybe it’s a new paradigm?

In our opinion, the breeding herd continues to decline - the latest week about 68,000. Last year averaged 57,000. We expect every day the number of sows is decreasing.

Last week we asked the Genesus US sales team to name sow herds liquidated or liquidating. Also who they know who is backed up with hogs. A number of sow herds were named across the Midwest. Few if any backed up hogs in Eastern Corn Belt. In the Western Corn Belt there are some for sure but certainly not all producers. Over the next two weeks watch the hog weights. They're at around 280-282 lbs. now. If average weights go into 270’s it tells us the number of hogs net backed up is next to nothing.

If pork cut-outs continue to climb it will reflect that buyers have to pay more, not that they want to. With gross packer margins good to excellent, we expect packers to keep pushing kill numbers.

The surest cure for low prices is low prices.